In spite of legal woes over its refund anticipation loan program, tax preparation services giant H&R Block recently announced that it had passed the 1 million mark with its tax refund card - a figure that it said could reach 3 million by the close of tax season.Block's Emerald MasterCard, a prepaid debit card issued through the company's H&R Block Bank, is issued to customers who are expecting a tax refund. Rather than waiting for refund checks or arranging for direct deposits of a refund to a bank account, taxpayers can acquire the card when the tax return is prepared.

The debit card's popularity comes in the aftermath of lawsuits filed last year by the attorneys general of both California and New York, who charged that the company's RALs mislead low-income clients with regard to exorbitant hidden fees.

In September, Block announced that it would reduce the cost of refund lending for many taxpayers. Tax refund loans account for roughly 4 percent of Block's annual revenues.

The company has subsequently offered up a $2,800 classic refund anticipation loan as an example, saying that that amount is the average loan size for Block. The tax prep concern said that the cost will be reduced by more than 40 percent compared to last year, and when taken as an 11-day loan, the finance charge translates to a 36 percent APR.

H&R Block Bank president Kathy Barney said that clients who don't have bank accounts find that they must pay check-cashing fees in order to cash their tax refund check, which she estimated could run as high as $460 per year. On a typical tax refund the fees can be upwards of $180.

If Block customers choose to receive an early tax refund with a RAL, the loan proceeds can be made available to the debit cardholder within an hour of card issuance.

Block Bank issues the debit card to clients and loads the customer's tax refund money when it is made available by the Internal Revenue Service. The customer has the ability to set up direct deposit with an employer, or reload the card with other funds at several locations around the country, including Wal-Mart locations.

Barney reported that at press time, Block customers with debit cards had reloaded their debit card accounts with an aggregate of $43 million in direct-deposit payrolls.

"Block has done surveys for the tax client base and we have found that we have about 3 million [taxpayers] that are unbanked and another 3 million that are underserved," said Barney. "That's a good portion of our client base. We have 16 million retail clients, and of that almost 7 million are unbanked or underserved, so there's a great need for traditional banking products and services that are simple and affordable."

A COMPETITIVE ADVANTAGE?

However, smaller tax preparers say that the Block debit card has not affected their business.

Duane Egbert, a tax pro in Colorado Springs, Colo., hasn't seen a change in his annual tax business due to the new debit card offered by Block. "I never even knew that they had one, to tell the truth," he said, adding that his customers aren't mentioning the card, nor are they asking for something similar.

Egbert's Tax Service might be just one company in one location, but Liberty Tax Service is on the other side of the equation, operating 2,450 offices throughout the U.S. and Canada, and its chief executive, John Hewitt, said that he hasn't seen any impact on his client base as a result of the new Block offering either. "I haven't had one franchisee call up and say, 'Block has this great card and customers are asking for it,'" he said. "We haven't seen any signs of our customers coming in or losing customers because we didn't have the card."

That doesn't mean Liberty Tax and other tax services won't offer their customers a direct-deposit debit card. "I think that we're going to at least move in that direction to have the capability of doing it in the future," said Hewitt.

While H&R Block may be generating publicity with its new product, there are many tax services besides Block that also offer debit cards, without the accompanying media splash. "Block isn't the only one offering this - several other companies offer something quite similar," explained Sally Ruxton, a tax consultant with L. Burdick & Associates in Eugene, Ore. Ruxton's firm uses Intuit's ProSeries as its tax software. Intuit works with Santa Barbara Bank and Trust to allow tax practitioners to offer a range of refund options to their clients, including debit cards.

Drake Software is another provider that works with outside financial institutions to offer bank products, including refund debit cards that, like the Block card, can be reloaded with direct-deposit payroll money.

The H&R Block Bank, which opened in May, is offering more than just the refund debit cards. There are savings accounts, IRAs, online banking services and mortgages. Barney revealed that the bank has attracted over $2 million in traditional savings accounts, while nearly 50,000 customers have opened up IRA accounts since the bank's inception.

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